Britains leading share index ended down 3.2 percent on Thursday, shrugging off the Bank of Englands interest rate cut, as Aviva led financials lower on concerns over the insurers capital strength. The FTSE 100 closed 116.01 points lower at 3,529.86, after gaining 3.8 percent on Wednesday to snap a three-session losing streak.
The UK benchmark is down more than 20 percent so far this year after sliding more than 31 percent last year. "I dont think anyone was expecting yesterdays rally to be anything other than a bear market rally. The macro economic situation still hasnt changed," said Richard Hunter, head of UK equities at Hargreaves Lansdown.
Financials took the most points off the UK index, with Aviva topping the blue chip losers list, losing one third of its value. The insurer announced it would maintain its dividend, dispelling speculation of a reduced payout, but reawakening worries over its capital position, analysts said. Other insurers Friends Provident, Old Mutual, Prudential, Standard Life and Legal & General slumped 13.1 to 28.9 percent.
In the banking sector, HSBC, Barclays, Royal Bank of Scotland and Lloyds Banking Group sank 5.9 to 24 percent. The Bank of England (BoE) cut interest rates by 50 basis points to a record low of 0.5 percent and said it would pump 75 billion pounds of new money into buying assets, mostly gilts, in its battle with recession. Manoj Ladwa, senior trader at ETX Capital, said quantitative easing "will only work if banks loosen their lending criteria and a measure of business confidence returns."
The European Central Bank also cut interest rates by 50 basis points to 1.5 percent. But glum news from General Motors weighed on sentiment. The automaker said its auditors had raised "substantial doubt" about its ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash. Also, British house prices fell 2.3 percent in February and by a record 17.7 percent year-on-year, taking average prices back to levels last seen in August 2004, mortgage lender Halifax said in its monthly survey.
US non-farm payrolls data, due on Friday, will provide further clues about how bleak the picture of the American economy really is. Commodity stocks were another standout losing sector as prices of crude and base metals slipped. BP and Royal Dutch Shell shed 2 and 2.7 percent, respectively, while miners Xstrata, Kazakhmys, Rio Tinto, BHP Billiton and Anglo American dropped between 5.6 and 12 percent.
Property firm Hammerson, however, advanced 4.4 percent after its 584 million pounds rights issue announced last month to pay down debt and strengthen its balance sheet was seen to be well-received amid the property downturn. Peer British Land rose 4.8 percent. Defensive utility stocks were also in demand, with United Utilities, Scottish & Southern Energy, Pennon Group and National Grid rising 0.5 to 3.4 percent.
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